I have 3 smaller 401k accounts from previous jobs. Should I roll them over into a guaranteed return annuity?
Dear Carter, I recommend rolling your 401(k) accounts from previous employers into a Rollover IRA at a low cost provider (Vanguard is a good example). A guaranteed return annuity is not a great idea for several reasons: 1) if you're not yet retired, it would be a deferred annuity, 2) interest rates are relatively low now - not a wonderful time to lock money into an annuity, 3) it can tie down your money and 4) your money already is tax-deferred - what's the benefit of a having an annuity structure when your money already is tax-deferred?
Something you'll need to ask is why is the guaranteed return annuity being recommended? If your financial planner has done their due diligence there might be a legitimate reason, however, rarely does the annuity fit into an overall financial plan, especially in the context of an IRA rollover from a 401k plan. The annuity market has heated up over the past few years because of certain guarantees but those guarantees have a significant number of strings attached. You have to fully and completely understand these, which is difficult. Perhaps the bigger aspect is that you will probably have a very limited number of options for investments (called sub accounts) inside the annuity versus a virtually unlimited number of choices and changes outside of the annuity. Hopefully your advisor is helping you to see some of these issues. Keep checking on additional responses here on Brightscope - Eve has started a great forum and there will be many more views coming!
Dear Carter, without knowing more about your particular circumstances (in particular, your other retirement savings, non-retirement savings, asset allocation) or understanding the specifics of the annuity, it is impossible to make a definitive recommendation.
However, in all likelihood, rolling these accounts into a guaranteed return annuity would be a very bad idea. Here is why: (1) interest rates are exceptionally low, and you would be locking in these low rates by entering into a long-term contract; (2) fees and expenses on guaranteed annuities are usually ridiculously high, given the benefit. Working on your own or with an advisor, I believe you would be able to achieve a better return on risk at a much reduced cost. (3) annuities typically have very large surrender charges, so if you change your mind in three months or three years, your capital will be hit with a large termination fee.
Follow Eve's recommendation and roll over the accounts into a low-cost, self-directed account. She mentions Vanguard and I would look no further. If you do not feel comfortable handling this on your own, or if you want investment advice for the account, then find an independent, fee-only advisor to work with you. A fee-only advisor has no conflict of interest: no incentive to sell you particular products (such as annuities with ridiculous fees). A fee-only advisor will work with you to develop an account portfolio allocation that is appropriate for your risk profile, without being restricted to a particular product or family of funds.